Advice for recent college grads on paying off your student loans

College students are graduating with tens of thousands of dollars in student loan debt on average. Paying back that debt is difficult for many recent graduates searching for a job that will pay all the bills each month. However, if you can't pay your minimum each month, your credit health is being damaged because of it. Even paying only the minimum each month can negatively impact your credit score and report. This article will discuss the Dos and Don’ts for college graduates paying back their student loans, and achieving financial freedom post-college, without causing long term damage to their credit.


Do try to find a lower interest rate for your student loan balance

Even if you have bad credit, you may be able to find ways to lower your interest rate, and thereby decreasing the total amount you owe. Many student loan lenders, including the Department of Education, offer an interest rate discount program for those that have bad credit or have had a good history of on-time payments. These discounts usually amount to 0.25 percent off, which can take off a good chunk of your loan.

Do pay off your principal loan quickly

A student loan, just like any other type of loan, comes with an interest charge. This is a percentage of your loan with the charge being added every single month. A good way to reduce this charge is to pay off your principal loan quicker. By making larger and more frequent payments, you will be able to get the principal balance down and reduce your interest.

Do start by paying off your smaller loans first

Start by paying off smaller loans first, and then gradually adding that minimum amount from the paid-off loans to other loans. This financial tip is called “snowballing” and can also help you budget out credit card payments, which in turn help improve your credit.

Do consider consolidating your loans

Another way to make student loans more affordable is to consolidate debt, which combines several loans into a single payment. This option is much easier than making several payments and is extremely useful if you have poor credit. But before you choose this option, you should do a fair amount of research beforehand. Many federal direct consolidation loans will offer a lower interest rate for the consolidated loan, but people should be sure this is the case before signing up for this option.

Do create a budget

If you are going to pay off a sizable portion of your principal, make sure you have the funds to do so. This is a good plan to have, but you don't want that to leave you broke before your next paycheck. Creating a budget can help you out in such a situation. By marking down all of your expenses, including your student loan payments, you will be able to plan your budget accordingly.


Do not panic

Graduation can be overwhelming. Not only are you searching for a job and in a tough transition period, but you may find yourself with a large amount of debt. While this may set off a panic mode, just remember that there are ways to pay off your debt consistently without breaking the bank. Breathe and plan out your next steps. Be realistic about how much you owe, and approach paying back your student loans in a reasonable manner. Don’t forget to look at your interest rate and what type of repayment plan for which you qualify.

Do not take a grace period—if possible

Recent graduates are allotted an amount of time before their first loan payment is due—this is called a ‘grace period.’ Your grace period starts as soon as you stop carrying half of a full-course load. Depending on your loan, your grace period length may vary. However, you may still continue to accrue interest, making the total amount of your loans increase. If you have the option to begin paying your loans as soon as you’re out of school, you may be paying less in the long run.

Do not lengthen your payment time

Students, on average, take ten years to pay off their student loan bills, yet some choose to pay it over a thirty-year span by paying smaller fractions for a longer time. While this may help in the short term, this may increase your interest rate and cost you more over time, while in turn, damaging your credit score.

Do not rely on your credit card to pay your loans

Credit cards can be an attractive way to pay off your loan. However, some lenders may not allow you to pay them off using a credit card. Even if your lender does allow you to pay them off, there may be hidden fees involved placing you in an even more precarious financial situation with a higher interest rate and increased likelihood for future debt or bad credit.

Do not default

Most importantly, failing to pay your student loan debts can result in collections, lawsuits, wage garnishment, and ruined credit scores. If you are unable to pay your student loans, you have options, whether it be getting a second job or asking family members for help. While some options may delay you from paying your debt, you can also consider options of deferment, forbearance, or debt restructuring. Defaulting can mean a life of collection calls and up to seven years of bad credit, so avoid it all costs.

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Hopefully this article gave you an understanding of how to handle your student loan debt after you have graduated college, so as to avoid any harm on your credit score and report. While tackling student loan debt may seem daunting, by devising a budget that helps you incorporate your loans into your monthly budget and overall financial lifestyle, you will be able to successfully pay off your debt and enjoy the education you have received.

More expert advice about Education Loans

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John C. HeathDirecting Attorney

John Heath was born and raised in Salt Lake City, Utah. He received his BA from the University of Utah and his Juris Doctor from Ohio Northern University. Mr. Heath has worked as an attorney in both a private and public interest practices. He...

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